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Sub-Zero Temps Fuel Record Natural Gas Cash Prices, but Quick Warm-Up Sends Futures Floundering
February got off to a wild start in the natural gas spot market during the Jan. 31-Feb. 3 trading week. Parts of the Northeast saw prices surge to record highs, all to come crashing down the very next day. When the dust settled, NGI’s Weekly Spot Gas National Avg. climbed $1.375 to $6.255/MMBtu.
Nymex natural gas futures, meanwhile, headed south as this week’s Arctic blast was to be quickly followed by much warmer weather. The rise in temperatures was expected to lead to a swift recovery in production, while also padding stocks further. The March Nymex contract settled Friday at $2.410, off 4.6 cents on the day and down 26.7 cents from Monday’s close.
Though mostly sleepy this winter, Northeast cash markets stole the show this week as frigid polar air spread across the region late in the period. Temperatures were forecast to plunge below zero over the weekend in Boston, with a fierce wind chill of as much as 100 degrees below zero at the summit of Mount Washington in New Hampshire.
Several pipelines in the region were preparing for the storm as heating demand was on the rise.
Price action, meanwhile, was fast and furious. PNGTS shot up to a never-before-seen $225 on Thursday but then quickly plunged back to around $13 by Friday. The location averaged $36.285 higher on the week at $41.055. Tenn Zone 6 200L jumped $24.600 to average $28.725, but only after soaring to $205.000.
Gains were not quite as steep upstream in Appalachia but were significant nonetheless. Texas Eastern M-3, Delivery jumped to a high of $45.000 but averaged $11.420 for the week, up $8.475.
“The tremendous blow-out in spot gas prices at regional hubs appears to be occurring with increasing regularity in recent years, and hints at growing upside risks for natural gas nationally as balances tighten structurally in coming years,” said EBW Analytics Group LLC’s Eli Rubin, senior energy analyst.
Elsewhere throughout the Lower 48, prices were mostly lower, particularly on the West Coast. The multip-dollar declines occurred even as moisture associated with a Pacific cyclone and its cold front moved into the Pacific Northwest and portions of California.
The National Weather Service (NWS) said additional energy arriving behind the system would expand the unsettled weather along the West Coast and then farther inland. Heavy mountain snow was possible, with moderate rain for the lower elevations of northern and central California and the Pacific Northwest through the weekend. The mountain snows should begin spreading farther inland into the Intermountain West, the northern Rockies and the Great Basin on Sunday.
With several pipeline maintenance events wrapping up in recent weeks, gas demand has fallen from earlier season highs. As such, Northwest Sumas fell $5.455 week/week to average $7.065, while Malin lost $5.525 to average $7.940. In California, the SoCal Citygate dropped $4.070 to $10.350.
Natural gas futures action had far less fireworks than the cash markets this week, with prices tumbling to multi-year lows amid ample storage and a warm February outlook.
Maxar’s Weather Desk said the Pacific remains the primary influence on the pattern at mid-month, but there are changes in the orientation of ridges and troughs. The current outlook shows above-normal temperatures in the Eastern half of the country during the six to 10-day period and remaining on the warm side through day 15. Below-normal temperatures are seen returning to the northern Rockies, however. The forecast for the South has trended slightly colder as well.
That said, storage inventories are tracking well above normal for this time of year and after this week’s Arctic blast is accounted for, stocks should continue to grow. This gives the market little incentive to drive prices higher, especially as the spring shoulder season nears.
Not even the impending return of Freeport LNG appears to be swaying the market to move the price needle higher. The liquefied natural gas export terminal has been inching toward a restart, with federal approvals this week advancing the ball. Rather than exhibiting concerns about Freeport’s return, though, the gas market has taken the stance that the added demand is necessary to prevent further price decreases.
Notwithstanding what’s sure to be a strong storage withdrawal for the current week, the latest government inventory data leaves little reason for concern.
On Thursday, the Energy Information Administration (EIA) said storage levels fell by a net 151 Bcf for the week ending Jan. 27. This was on the higher end of expectations, but the overall data came with an asterisk.
The EIA said a revision in the Midwest caused the stocks for the week ending Jan. 20 to change to 2,734 Bcf from 2,729 Bcf. This reflected a net draw of 86 Bcf, rather than the 91 Bcf pull originally reported.
As for the latest EIA report, the Midwest led with a 46 Bcf decline in stocks, while the East followed with a 44 Bcf drop. South Central inventories slid by 42 Bcf, which included a 29 Bcf pull from nonsalt facilities and a 13 Bcf pull from salts. The Pacific withdrew 10 Bcf, and the Mountain withdrew 8 Bcf.
Mobius Risk Group characterized the pull from South Central salt facilities as “reasonably supportive,” but noted the “rather pedestrian 90 Bcf withdrawal from the combined Midwest and East storage regions, which were decidedly impacted by warmer-than-normal temperatures for the Jan. 27 reference week.”
Mobius said next week, the market is likely to look closely at both the salt and combined Midwest for signs that a materially colder week corresponded to significantly larger week/week inventory changes. Of course, what remains most relevant to the market is the upcoming wave of warmth, according to the firm.
Mobius noted that the 15-day weather forecast is more than 50 heating degree days warmer than normal, and a similar delta versus the same period last year.
“Barring a significant shift in weather model output the curve could be back under pressure next week,” it said. “However, if we have learned anything from the current winter withdrawal season, it is that model output has been notably inconsistent and marginally reliable.”
Cash Quick To Rise, Quick To Fall
Spot natural gas prices sank from coast to coast at the end of the week as warmer weather was expected to quickly follow on the heels of the weekend’s polar outbreak across the Northeast.
Though the most bitter air was set to arrive on Friday and Saturday, traders looked to see a considerable warm-up in the forecast. After topping out in the teens on Saturday, the high in Boston was projected to hit the mid-40s on Sunday and low 50s by Wednesday. A similar temperature trajectory was expected for New York and across the Northeast.
Several pipelines in the region were bracing for the Arctic blast. Tennessee Gas Pipeline (TGP), Eastern Shore Natural Gas Co. and Transcontinental Gas Pipe Line Co. were among them. TGP also posted interruptible storage withdrawal restrictions at the Bear Creek storage field as of Friday’s evening cycle.
With heating demand set to fall in the coming days, though, cash prices in the region crumbled. Iroquois Zone 2 spot gas plummeted $129.530 day/day to average $8.120 for gas delivery through Monday. PNGTS also recorded a decline upward of $100, while Algonquin Citygate tumbled $62.400 to average $9.015. Transco Zone 6 NY fell to only $3.520.
Prices upstream in Appalachia followed suit, with the highest price in the region coming in below $4.000 and most averaging closer to $2.000.
Other locations declined as well, with sub-$3.00 gas seen across parts of the Southeast, Louisiana and Midwest. Prices were even lower in Texas.
Houston Ship Channel cash dropped 45.0 cents on the day to average $1.850 for the three-day gas delivery, while Waha fell 76.5 cents to $1.465.
Notably, after a sell-off in recent days, West Coast markets had returned to a level more on par with the rest of the country. The SoCal Border Avg. fell $1.620 day/day to average $3.795, while Northwest Sumas in the Rockies dropped 89.5 cents to $3.325.
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